Examining a Business Failure - Enron
In this paper I will discuss how organizational behaviors theories could have predicted or explain the failure of Enron Corporation and examine a variety of contributors to the organizations failure. Enron Corporation was founded in 1985 by Kenneth Lay after merging Houston Natural Gas and InerNorth. The scandal that led to the bankruptcy of Enron was revealed in October 2001. Jerry Skilling was hired as Chief Executive Officer and was responsible for hiring the additional executives. Skilling and the executives found that “through the use of accounting loopholes, special purpose entities, and poor financial reporting, they were able to hide billions in debt from failed deals and projects. Chief Financial Officer Andrew Fastow and other executives were able to mislead Enron’s board of directors and audit committee concerning high –risk accounting issues”("Enron Scandal", p. 1.). The internal and external contributor’s deceptive practices resulted in Enron’s bankruptcy.
Enron’s executive team wanted to give the appearance that the company’s stock was desirable and drive up the share price. They did this by excluding negative information such as losses and overstated operations value. The executive team relied on capital provide by new investors but they had to conceal the risk. Once Enron began this new type of accounting practice, the need to increase the deception increased with every fiscal year. They wanted to make sure they kept moving forward at all cost. This is why a system of checks and balances was needed (Gudikunst, 2003). To prevent unethical practices separate internal and external auditing systems should be used. Enron used Arthur Anderson for both auditing systems and this was a clear conflict of interest that revealed their...